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What are the pros and cons of monopolies?

The word monopolies has negative connotations in economic history, but recently monopolies have been praised by people such as Warren Buffett and Peter Thiel. The arguments for and against are not new, but now they have better empirical support.

Monopolies are good for the economy

Monopolies provide capital for R&D and incentives to entrepreneurs.

Monopolies stimulate capitalism

Without monopoly type profits, there would be little incentive to innovate.

Monopolies can invest in innovation

Perfect competition erodes returns leaving little for R&D

Monopolies are damaging to economies

Monopolies choke economies: competition is central to a healthy economic system

Monopolies reduce entrepreneurial activity

Rising product market concentration leads to a collapse in entrepreneurial activity

Monopolies reduce wages for workers

Monopolies or tight oligopolies have pricing power as well as market power, thus giving them the ability to reduce their workers' wages.

Monopolies lead to higher prices

With no consumer choice, companies have pricing power. Consumers have no choice but to buy from the company who has a monopoly because they have no other options. Because of this, the company with a monopoly can set prices as high as they want, since they do not need to compete with other company's products to win consumers over.

Monopolies reduce innovation

Monopolies do not have to worry about constantly making innovations to their product because consumers are forced to buy from them in the first place. A lack of market competition equals a lack of innovation.

Oligopolies behave like monopolies

Concentrated oligopolies are just as bad for economic growth as monopolies

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This page was last edited on Monday, 20 Jan 2020 at 15:38 UTC